Regulating the creditor-debtor cat-and-mouse chase

Benjamin Franklin said, “creditors have better memories than debtors.” Comically, Ambrose Bierce in his book, The Devil’s Dictionary, defined “forgetfulness” as a gift from God bestowed upon debtors in compensation for their destitution of conscience.

Incurring a debt is something that everyone, from the richest of the rich to the poorest of poor, can relate to; thus, good material for comedy. An anecdote would usually start with a debtor acting extra friendly and pleasing with a prospective creditor, full of promises and guarantees, but once the financial assistance is given, the debtor would usually magically disappear to the land of Narnia, leaving the creditor with a memory of the debt and the feeling of indignation or distress at not being paid.

However, this is taking the subject matter lightly. In reality, many people seek help from creditors like financing and lending corporations, just to make ends meet. Given what appears to be a lack of substantial improvement in the economy, a lot of these people fail to make good on their debts and consequently avoid their creditors. Thus, the cat-and-mouse chase for payment. As debt collection becomes an arduous task for the financing and lending corporations, some of these, unfortunately, employ abusive, unethical, and unfair means to collect debts.

Acting on the numerous complaints against financing and lending corporations’ unfair collection practices, the Securities and Exchange Commission (SEC) issued Memorandum Circular No. 18, Series of 2019, on Aug. 19, entitled “Prohibition on Unfair Debt Collection Practices of Financial Companies (FC) and Lending Companies (LC).” This memorandum states that financial and lending corporations may resort to all reasonable and legally permissible means to collect the amounts due them under the loan agreement, provided that, in the exercise of their rights and performance of their duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous and untoward acts.

Under the memorandum, the acts which constitute unfair collection practices include:

• the use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person;

• the use of threats to take any action that cannot legally be taken;

• the use of obscenities, insults, or profane language the natural consequence of which is to abuse the borrower and/or which amount to a criminal act or offense under applicable laws;

• disclosure or publication of the names and other personal information of borrowers who allegedly refuse to pay debts, except when the borrower consents to the disclosure, or when the information is released to other financial institutions, credit information bureaus, lenders, or their agents or representatives, or when disclosure is upon orders of a court of competent jurisdiction or any government office of agency authorized by law, or when the information is disclosed to third party service providers solely for the purpose of assisting the companies in the administration of its lending and financial business, or when the disclosure to third parties is solely for the purpose of insuring the companies from borrower default or other credit loss;

• communicating or threatening to communicate to any person loan information, which is known, or which should be known, to be false, including the failure to communicate that the debt is being disputed;

• the use of any false representation or deceptive means to collect or attempt to collect any debt or obtain information concerning a borrower;

• making contact at unreasonable/inconvenient times or hours, which the memorandum defines as contact before 6 a.m. or after 10 p.m., unless the account is past due for more than 15 days, or the borrower has given express consent that the said times are the only reasonable or convenient opportunities for contact; and

• notwithstanding the borrower’s consent, contacting the persons in the borrower’s contact list other than those who were named as guarantors or co-maker.

The commission of unfair collection practices shall subject the financial and lending corporations to a penalty of P25,000 for lending corporations and P50,000 for financial corporations, for their first offense; P50,000 for lending corporations and P100,000 for financial corporations, for their second offense; and for their third offense, subject to the facts, circumstances, and gravity of the offense, the SEC, at its discretion, may impose a fine of not less than twice the fine for the second offense but not more than P1,000,000, or suspension of lending and financing activities for a period of 60 days, or revocation of the certificate of authority to operate as a financing or lending company, as appropriate for each circumstance.

The computation for the progression of offenses shall lapse every three years from the last order of payment. The number of violations shall be determined on a per loan transaction per complaint basis, and thus, individual circumstances of unfair collection shall not be counted separately against the companies if the same pertains to the same loan of the same complainant with the same financial company or lending corporation. Also, these penalties shall be without prejudice to any other penalties that may be imposed by the SEC pursuant to the Revised Corporation Code of the Philippines and other relevant laws, rules, and regulations being implemented by the SEC, and further to the penalties that may be imposed by the court or other government agencies in the exercise of their respective mandates.

The issuance of this memorandum is a commendable action on the part of the SEC, as it aims to protect debtors against threats, intimidation and harassment and to regulate the creditors — financial and lending corporations — in the exercise of their right to collect what is due them. This may not improve the debtor’s memory nor cure their forgetfulness acquired upon the due date of the debt, but it may protect those debtors who are trying their best to make good on their promises from abuse and harassment. There might still be the cat-and-mouse chase for collection, but at least, it is one that is regulated by law.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.